How to Negotiate with Fulfillment Companies

Fulfillment Services
Fulfillment Services

Most businesses that ship products directly to customers have considered the idea of using a fulfillment service. Businesses use fulfillment services for convenience, for the ability to store more products, and for speedier shipping. Even businesses that manufacture their own products may lack the employee capacity to process bulk orders, or the facilities to store products at an on-site warehouse- these companies often use a ecommerce fulfillment service to take customer orders, package, and ship products.

Businesses that offer products from a variety of manufacturers, can also can have goods shipped directly to the fulfillment company for storage and eventual shipment as orders are placed. Some fulfillment companies also offer services like inbound call centers (for taking orders) and credit card processing, allowing you to outsource your entire physical sales process from end to end.

One of the best-kept secrets in fulfillment services is that most companies are willing to negotiate to gain your business. How do you get the best deal? By asking for extras, discounts, and perks that a fulfillment company is able to offer. Here’s a quick guide to finding the best deal on fulfillment services.

What’s in the Contract?

You should definitely enter into a contract before you have any goods shipped to an off-site storage facility. Contracts for drop shipping services typically outline the services required (for example, storage, order processing, shipment methods, etc.) and the duration of the agreement- usually six months, a year, etc. The contract should address the following:

  • Warehousing: Businesses that don’t have the warehouse capacity to stock all of the products that they sell often use an off-site warehouse, which allows for quick access to merchandise when customer orders are placed.
  • Order Processing: Fulfillment companies employ inbound sales staff, so a customer can call and place the order directly with the fulfillment service by calling a number listed on your website.
  • Shipment: After merchandise is received from the manufacturer and an order is placed, the fulfillment company will ship your product directly to your customer.

  • Costs and Billing: Management costs, inbound call representative costs, and other charges are typically assessed as monthly fees, while other costs, such as storage and shipment, will vary depending on how many items you stock and sell. Storage costs are usually calculated per “SKU” or per item you stock. The more products you offer, the more expensive your total costs will be.

Negotiating the Best Deal

Most fulfillment companies are willing to negotiate on things like per-SKU rates, volume discounts, and other costs. One thing you shouldn’t skimp on is insurance coverage- most companies provide it as standard in the service agreement. Don’t waive coverage in the interest of cutting costs. Instead, try to negotiate on:

  • Rates: Compile sales delivery data for the past several years to see where most of your outbound shipments are delivered. If most shipments go to a specific geographic location, or if few go to rural areas, you’ll probably get a better deal. Showing the fulfillment company that their workload will be easier is a good negotiation point.
  • Volume Discounts: Fulfillment companies usually offer some sort of tiered rate structure or volume discount for companies with high volume shipments. The more you store or ship, the less expensive services will be.
  • “Pilot” phase: It’s smart to start small. Before signing a lengthy contract, use a fulfillment company for a “pilot” or “test” phase, such as one shipment of products from a supplier, or a shorter time frame. Evaluate the fulfillment service using your own information and experience at the end of the test period – they’re likelier to bargain to keep your business.

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